Editore"s Note
Tilting at Windmills

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June 6, 2007
By: Kevin Drum

DECONSTRUCTING ROBERT SAMUELSON....Mark Thoma, a braver — or more dedicated — man than me, apparently still reads Robert Samuelson's column in the Washington Post. Today he discovers that Samuelson is as disingenuous as ever in a piece tackling the problem of growing income inequality. Says Thoma:

Finding a way to share the gains from economic growth more equitably won't be easy, and confusing the issue by claiming that more equitable distributions will lower economic growth, cause more frequent recessions, and be inflationary when there's no evidence to support those claims doesn't help at all.

No, but Samuelson's goal isn't to help. It's to muddy the waters. And he's very good at it.

Kevin Drum 3:31 PM Permalink | Trackbacks | Comments (42)

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Smoke the rich.

Posted by: razorboy on June 6, 2007 at 3:41 PM | PERMALINK

Yeah, but:

Finding a way to share the gains from economic growth more equitably won't be easy

Maybe, establishing such a means over the objections of entrenched power won't be easy, but finding a way to share gains from economic growth more equitably is dirt simple.

For instance: apply the progressive income tax to all income, rather than providing a separate preferential tax scheme that applies to capital gains.

See? Easy to find a way. Hard to get it adopted.

Posted by: cmdicely on June 6, 2007 at 3:58 PM | PERMALINK

cmdicely, that's a good way to share the costs of government more equitably, but given that our taxes are too low, it's not like lower-income people would get a tax cut under those circumstances.

now, maybe if we hiked taxes and instituted a national health-care insurance system: now that might distribute gains more equally.

but i digress: what i really wanted to mention was the way in which samuelson is a perfect demonstration of the problem of tenure for pundits. he's not a mouth-foamer like so many of his colleagues at the wapo op-ed page, but he is a dishonest hack who comes across as a reasonable person if you don't know the subject matter. and he gets to spew his ignorance from now until forever....

Posted by: howard on June 6, 2007 at 4:07 PM | PERMALINK

We can always adopt Robert Mugabe's policies, we will have fair income distribution in no time.

Posted by: Freedom Fighter on June 6, 2007 at 4:13 PM | PERMALINK
cmdicely, that's a good way to share the costs of government more equitably, but given that our taxes are too low, it's not like lower-income people would get a tax cut under those circumstances.

In the long term, they'd get either a tax cut or a benefit increase compared to what they would expect if the status quo arrangement of taxation were continued. But, sure, no immediate tax relief. But then, the challenge was "sharing economic gains more equitably" not "cutting taxes for the poor". The latter challenge, even in the short term, is nearly equally easy though: just do the same thing, but in such a way that it is revenue-neutral in the short term.

now, maybe if we hiked taxes and instituted a national health-care insurance system: now that might distribute gains more equally.

Instituting a national universal healthcare public benefit system would distribute gains more equally even without a tax hike.

An "insurance" system in which people paid premiums in a strict risk-pooling arrangement might not do so as much, since such a system merely equalizes costs within the pool, rather than subsidizing the expenses of the least well-off (though given the correlation of health and wealth, would probably still serve as something of a de facto subsidy for the less-well-off.)

But, yeah, I didn't mean to suggest that the method I pointed to was the ideal or exclusive method of decreasing the inequity in how our economy distributes gains, just that it was not hard to find ways that would clearly acheive that end, merely hard to get them adopted. There are many areas where obvious improvements can be made.

Posted by: cmdicely on June 6, 2007 at 4:21 PM | PERMALINK

What is that Chavez chap down in Venezuela doing about income inequity?

Posted by: nikkolai on June 6, 2007 at 4:33 PM | PERMALINK

FF seems to be misinformed. Mugabe is doing nothing to improve income equality. He's running a kleptocracy.

Posted by: freelunch on June 6, 2007 at 4:47 PM | PERMALINK

howard wrote: he is a dishonest hack who comes across as a reasonable person if you don't know the subject matter. and he gets to spew his ignorance from now until forever....

Hey, maybe "ex-liberal" is really Samuelson. Or vice-versa...

Posted by: Gregory on June 6, 2007 at 4:56 PM | PERMALINK

Well, at least Thoma doesn't seem to believe that inflation is caused by anything other than monetary policy. We can, at least, chalk up one positive for him.

As for pay equality, though I am not a big believer in its inherent justness, if you want more equality, then get rid of the payroll tax and replace the revenue with an upward adjustment in income taxes. And I agree with cmdicely, treat all income equally for tax purposes.

As for why some wages stagnated, no one has still accounted for how compensation and capital ownership has changed in the last 50 years, how illegal immigrants coming into the bottom of the pay scale affects median wages, or how the basket of goods and services available to nearly everyone has deepened and broadened because of economic development over the last 40 years. Discussing only wage compensation is too simplified. In addition, such a narrow focus misses sight of the amounts of money transferred through items like Medicaid, the EITC, and Social Security. Total income and income equivalents need to be accounted for.

Posted by: Yancey Ward on June 6, 2007 at 4:57 PM | PERMALINK

FF seems to be misinformed. Mugabe is doing nothing to improve income equality. He's running a kleptocracy.

Obviously, that's why Republican tool "Freedom Fighter" speaks of him favorably...

Posted by: Gregory on June 6, 2007 at 4:58 PM | PERMALINK

Rugged individualist Yancey Ward wrote: As for pay equality, though I am not a big believer in its inherent justness

You don't say.

Posted by: Gregory on June 6, 2007 at 5:01 PM | PERMALINK

Kevin Drum: Samuelson is as disingenuous as ever in a piece tackling the problem of growing income inequality

"Disingenuous" gives him too much credit. Samuelson genuinely doesn't know what he's talking about, and gets by with just regurgitating the punditocracy's current talking points and "conventional wisdom". He's occasionally correct about something in the same way that a stopped clock is right twice a day.

The problem with the "disingenuous" criticism is the same as the problem with most conspiracy theories - assuming too high a level competence.

Samuelson's goal isn't to help. It's to muddy the waters. And he's very good at it.

I don't know if that's his goal, but it's the effect. I've never seen him come to any real conclusion, make a serious proposal, or clearly reject an idea. He always writes in a "on the one hand, but on the other hand" style that says little. Maybe it's a cover for his ignorance.

Posted by: alex on June 6, 2007 at 5:09 PM | PERMALINK

The original paper to which Samuelson is responding, can be downloaded from here for free

Posted by: Mike on June 6, 2007 at 5:51 PM | PERMALINK

We can always adopt Robert Mugabe's policies, we will have fair income distribution in no time.

Posted by: Freedom Fighter on June 6, 2007 at 4:13 PM | PERMALINK
You see FF, that wasn't even funny. Your off in bizzaro land again.

Posted by: Northern Observer on June 6, 2007 at 5:51 PM | PERMALINK

What even the left seldom says is that a high concentration of wealth is a danger to the continuation of democractic societies. It's one of the two reasons Al Gore points to in his new book for why our politics has gone nutball. People as far ago as ancient Athens knew that the wealthy were not friends of democracy.

However, "growth" is the religion of public discourse and so anything that might slow down "growth" is evil and must be stamped out. Never mind that vast income inequality probably produces lower growth than moderate inequality.

Posted by: JohnN on June 6, 2007 at 6:30 PM | PERMALINK

In The Unsettling of America Wendell Berry does a great job of explaining why the GDP is not a good measure of a society's health.

I'm paraphrasing and condensing like crazy here but basically the argument is this: A family of four on a farm can (at least in theory) make a reasonable living but because they're growing their own food, doing their own repairs and not buying a lot they contribute little to the GDP.

They lose the farm. Move to a trailer. Hubby goes to work at a factory. Hubby starts drinking, abusing wife. Hubby moves out, rents an apartment somewhere else. Wife goes on welfare, keeps paying rent on the trailer. Kids need counselling. Wife needs counselling. Social workers abound. Presto! Sudenly this family is contributing a lot more to the GDP. But, are they better off?

(BTW I'm not knocking social workers, but if we need less of them we'd be better off, yes?)

Like I said, this is a gross oversimplification but you can see the basic point. Economic growth does not equal social good.

Posted by: thersites on June 6, 2007 at 6:45 PM | PERMALINK

cmdicely, at risk of pursuing a minor point to distraction, there's no guarantee that higher tax revenues will ultimately lead to programs that result in economic gains being distributed more equitably. that's why i tied together higher taxes and a program that does help.

in short, i think the problem is harder to crack than you do.

as for yancey, net worth and income are much more concentrated than they were 40 years ago, so while there are a number of interesting fine points that you raise, the core remains that gdp growth, particularly since the end of the 2001 recession, has gone almost entirely to owners of capital and the upper 1% of households by income.

Posted by: howard on June 6, 2007 at 6:53 PM | PERMALINK

Chavez is no W. Mugabe Bush.

Posted by: Brojo on June 6, 2007 at 6:56 PM | PERMALINK

We can always adopt Robert Mugabe's policies, we will have fair income distribution in no time.
Posted by: Freedom Fighter

You mean, like, chasing all the white farmers off their land in the Middle West? Are you thinking what I'm thinking? We can give all the poor negras land in the Dakotas, Eastern Montana, Oklahoma, etc! That will solve everyone's economic woes.

FF, I'm not sure you are even smart enough to be a caricature of a right wing tool.

Posted by: JeffII on June 6, 2007 at 7:03 PM | PERMALINK

Mugabe is doing nothing to improve income equality. He's running a kleptocracy.

So, IOW, the Bush admin has already taken Freakin' Fanatic's and adopted the Mugabe model.

Posted by: Disputo on June 6, 2007 at 7:04 PM | PERMALINK
cmdicely, at risk of pursuing a minor point to distraction, there's no guarantee that higher tax revenues will ultimately lead to programs that result in economic gains being distributed more equitably.

A taxation system that is more fair, in and of itself, results directly in distribution of economic gains more equitably than the preceding condition even before considering any changes to (other) programs that may or may not result from it.

Posted by: cmdicely on June 6, 2007 at 7:04 PM | PERMALINK

Uh, that should be "taken Freakin' Fanatic's advice"

Posted by: Disputo on June 6, 2007 at 7:14 PM | PERMALINK

A taxation system that is more fair, in and of itself, results directly in distribution of economic gains more equitably than the preceding condition even before considering any changes to (other) programs that may or may not result from it.

More fair, and more equitably, mean what exactly? You can argue that equity is best served by allocating resources so that the income inequality within society is minimized. Someone else can argue that equity is best served by allocating resources within society so that efficiency is maximized, in that the fruits of one's labor, investment, and choices should bot be dissipated to those who are less efficient with their labor, their investments or their life choices. The latter argument is built on the presumption that fairness and equity are maintained by allowing choice to flourish.

Posted by: TangoMan on June 6, 2007 at 7:21 PM | PERMALINK
More fair, and more equitably, mean what exactly?

What I said is, I would suggest, true for any reasonable definitions of the terms, including the two competing alternatives you suggest as if they were polar opposites.


You can argue that equity is best served by allocating resources so that the income inequality within society is minimized.

And, under that definition, the fairer tax system I proposed provides greater equity than the status quo.


Someone else can argue that equity is best served by allocating resources within society so that efficiency is maximized, in that the fruits of one's labor, investment, and choices should bot be dissipated to those who are less efficient with their labor, their investments or their life choices.

And, under that definition, the tax system I proposed earlier which allows people to keep the same proportion of the income resulting from their participation in the economic system whether that was freely earned by labor or freely earned by trading capital also improves equity.

Under neither definition does the preferential treatment of capital income under our current system do anything but inhibit equity.

Posted by: cmdicely on June 6, 2007 at 7:58 PM | PERMALINK

Under neither definition does the preferential treatment of capital income under our current system do anything but inhibit equity.

One measure of fairness and equity would be to balance an individual's taxes against an individual's claim on government services. There is a scaling effect at work when one looks at taxes on capital versus taxes on income, in that one would be hard put to argue that the taxes an individual pays on $500,000 of capital gains equates to the claims on government that that individual has made, therefore to treat those gains in the same manner as the $50,000 in income earned by another taxpayer, where their tax on the $50,000 more closely tracks their claims on government services, is an indication of an unfair and inequitable tax scheme.

Thus, we're back to the original question of how one defines fairness and equity. It's certainly not fair, nor equitable, to be paying more in tax than one can expect to receive in service from the government. It is not fair, nor equitable, to expect some to subsidize others.

Posted by: TangoMan on June 6, 2007 at 8:15 PM | PERMALINK

It's certainly not fair, nor equitable, to be paying more in tax than one can expect to receive in service from the government. It is not fair, nor equitable, to expect some to subsidize others.

It's that kind of talk that led to the Great Depression. My advice is for you to make sure that the windows of your upper floor office open.

Posted by: Disputo on June 6, 2007 at 8:20 PM | PERMALINK

Why does anyone read Robert J. Samuelson? Why does a major newspaper give him a regular op-ed column?

These things are mysteries to me. Years ago, my running joke over at Brad DeLong's blog was that the WaPo thought they were signing noted economist Paul Samuelson as a columnist, and didn't realize their mistake until it was too late. (Despite having the econ beat on the WaPo op-ed page, Robert J. Samuelson's resume shows no econ background.) It was meant to be a completely ridiculous explanation, of course, but I've yet to hear a better one.

Posted by: low-tech cyclist (formerly RT) on June 6, 2007 at 10:05 PM | PERMALINK

Krekt me if I'm wrong. The US enjoyed its greatest period of prosperity, economic expansion (for better or, well, much worse), measured happiness, economic security (going to the doctor or dentist was not an economic trauma), growing educational levels, and lets say all around middle class zenith in the 3 decades following WWII - a time of our nation's greatest and growing income Equality.

Samuelson - to you.

Posted by: geo on June 6, 2007 at 10:15 PM | PERMALINK

Krekt me if I'm wrong. The US enjoyed its greatest period of prosperity, economic expansion (for better or, well, much worse), measured happiness, economic security (going to the doctor or dentist was not an economic trauma), growing educational levels, and lets say all around middle class zenith in the 3 decades following WWII - a time of our nation's greatest and growing income Equality.

Samuelson - to you.

Let's see:
-Immigration a trickle compared to the flood of today. Labor scarcity was a boon to those rising out of poverty.
-Economies around the world turned to rubble by WWII while the US economy had lots of capacity, reflected in GNP and trade statistics.
-

Posted by: TangoMan on June 6, 2007 at 10:35 PM | PERMALINK

You will never be able to achieve equal outcome through direct government invention. In order for government to be powerful enough to achieve such an outcome, it must be powerful enough to force all the other actors to submit. If government would be this powerful (powerful enough to give every person what they always wanted), government would also be powerful enough to take away everything they had.

The flaw of liberalism is that, in giving government the power to make heaven on Earth, liberals assume that it will always be altruistic leaders that will take the reigns of power.

History has proven this wrong again and again.

Posted by: brian on June 6, 2007 at 11:08 PM | PERMALINK

from Samuelson: Comparisons such as these evoke images of greedy CEOs and hedge fund managers. But the story is more complicated. On the whole, the economy that produces these growing inequalities outperforms the one that created more statistical equality. The norms and practices highlighted by Levy and Temin collapsed mainly because they no longer worked. The idea that everyone's wages should reflect inflation plus a few percentage points worsened both inflation and stability. There were four recessions between 1969 and 1981; by then, inflation was 10 percent and mortgage rates 15 percent. Productivity growth had plunged.
%%%
Greater competition -- from imports, deregulation, new technologies -- also doomed pattern wage-setting. Companies with lax pay practices lost sales and profits. Consider GM, Ford and Chrysler as Exhibit A.
%%%
Economic inequality is an intellectual quagmire, because its origins and consequences are so murky. Contrary to popular belief, for example, it has not prevented most Americans from getting ahead. Consider families with children. A study by the Congressional Budget Office finds that from 1991 to 2005 income gains averaged 35 percent for the poorest fifth of these households, 19 percent for the middle three-fifths and 53 percent for the richest fifth. But their gains have decreased slightly since 2000. Here's another twist to the discussion: Today's immigration aggravates inequality, because so many new immigrants are poor and unskilled.

Shouldn't you at least indicate which of Samuelson's assertions is an attempt to muddy the waters? And how you know that his goal is to muddy the waters?

Posted by: MatthewRmarler on June 6, 2007 at 11:33 PM | PERMALINK

Today he discovers that Samuelson is as disingenuous as ever in a piece tackling the problem of growing income inequality.

Does "disingenuous" mean "repeating or citing facts that you wish were not important"?

Anybody writing about income inequality has to acknowledge that direct government intervention can have short-term and long-term adverse consequences, without a guaranteed success. There is no simple explanation for increasing income disparity in an economy with a $13T GDP. And there is no simple set of policies that will with high reliability rectify the problem. If anything is "disingenuous", that would be to pretend otherwise.

Posted by: MatthewRmarler on June 6, 2007 at 11:46 PM | PERMALINK

I thought the following comment from the linked blog to be especially enlightening and constructive:

"...If the wealthy were to arrange to have their disposable incomes reduced by the government in such a way that all of them maintain their 'bidding advantages' relative to each other, then none of them would actually lose out because prices would drop to levels that all of them could afford. Smaller incomes would buy just as much as larger incomes could have purchased previously. This is all to say that it really wouldn't impose any real sacrifice on them if they were to accept steeply progressive income taxes and allowed the government to pour that money into real economic investments in infrastructure, pollution/blight cleanup, human capital development (more teachers/classrooms), humane health care for all, etc., etc.

They could be using their resources to help the Working Class and The Poor in a big, big way and it wouldn't really cost them anything to do so. They are idiots for not seizing this opportunity that actually exists for them. Poor them. Poor us. Poor America..."

Posted by: James Kroeger | Link to Comment | Jun 6, 2007 7:34:10 AM

Posted by: Doc at the Radar Station on June 7, 2007 at 1:09 AM | PERMALINK
One measure of fairness and equity would be to balance an individual's taxes against an individual's claim on government services.

Certainly, that's not much of an operationalization, since it merely sets up yet another subjective idea in need of definition. Further, it doesn't really make a whole lot of sense: if the standard is some subjective "claim on government services", then it doesn't make any sense to examine taxes alone, though it might make sense to look at net receipt of government services, viewing taxes as a negative service.

There is a scaling effect at work when one looks at taxes on capital versus taxes on income, in that one would be hard put to argue that the taxes an individual pays on $500,000 of capital gains equates to the claims on government that that individual has made, therefore to treat those gains in the same manner as the $50,000 in income earned by another taxpayer, where their tax on the $50,000 more closely tracks their claims on government services, is an indication of an unfair and inequitable tax scheme.

I don't see what relevance "claims that that individual has made" could possibly have here, unless those claims were fulfilled, in which case the measure is receipts, not claims. But in either case, this doesn't really make sense. First, because it only makes any sense as a standard if one views the role of the government as to have no net effect whatsoever, which, if one accepts it, is an argument for the abolition of government, not for wasting resources funneling them in and out of government in an effort not to have any effect. Second, because, inasmuch as there is a relationship here, it is to amount of income, more than to source of income (labor v. capital), so while (ignoring the other problems with it), an argument like this might justify different treatment of different levels of income (the $500,000 vs. $50,000), it doesn't justify different treatment of $500,000 in labor income from $500,000 in capital income, or $50,000 in labor income v. $50,000 in capital income, so its not really relevant to the issue at hand. And third, I disagree with your interpretation of the direction of the effect: the ability to receive large incomes, and to retain the wealth so attained, owes more to the existence and operation of government than the ability to receive small incomes and retain small stores of wealth, so (both relative to income and absolutely) the wealthy receive more from governmen, not less, so, in addition to not justifying a distinction on the basis you suggest, the standard you propose, on the basis where it does support a distinction, supports one in the opposite direction you propose.

Indeed, its one of the strongest (and most commonly made) arguments for a progressive income tax.

Next?

Posted by: cmdicely on June 7, 2007 at 10:29 AM | PERMALINK

Anybody writing about income inequality has to acknowledge that direct government intervention can have short-term and long-term positive consequences, without a guaranteed failure.

Posted by: anonymous on June 7, 2007 at 10:54 AM | PERMALINK

marler: He muddies the waters by including the Clinton boom years, during which the lower and middle classes made great strides. Then he allows that "their gains have decreased slightly since 2000." Yeah, they decreased to almost nothing for six years, while nearly every penny of income growth has accrued to the top fifth.

Posted by: the idler on June 7, 2007 at 11:17 AM | PERMALINK
….liberals assume that it will always be altruistic leaders that will take the reigns of power… brian at 11:08 PM
If you were to stop and think a moment, you would realize that the concept of separation of powers embodied in the US constitution is designed to prevent that very thing, except that currently the Republican Party has circumvented it when its congressional people have declined to hold its executive people to account. (It's reins not rains not reigns.)
….direct government intervention can have short-term and long-term adverse consequences, without a guaranteed success….MatthewRmarlerat 11:46 PM
A progressive income tax that treated all sources of income equally would take care of this problem easily without adverse consequences, as it did before. There is a simple explanation: the wealthy are taxed at lower rates than they should. It is disingenuous of you to try to imply that market forces are responsible when, in fact, political forces are. Posted by: Mike on June 7, 2007 at 1:02 PM | PERMALINK

Since Milton Friedman isn't around it seems natural the Repubs would find somebody like Samuelson to replace him. Of course, they don't have much to offer.

I agree with the cynics who say progressive taxation isn't the answer. All that does it let people keep money in their pockets -- and you just know they aren't going to be able to keep it when retailers can always adjust their prices up to soak it in like a sponge.

No, we need another way for people to be wealthier without having extra cash jingling in their pockets. I think insurance policies and IRAs are examples of how that has worked (to a limited extent) in the past. But, we need a more complete over-arching approach today and the health care reform has to be part of it.

I think we should consider the long-time-tested approach of America's Rich. How do they handle their wealth? What would we have to institute to enable middle-class individuals to set aside wealth on a regular basis? What kind of wealth transfer is it? Who does it move from and to whom does it go?

It is potentially very valuable to America, but the transition from today's system could be very chaotic. A lot of i's have to be dotted and a lot of t's have to be crossed before it's begun. Of course, to ease the transition it should be established in pieces, with some time to observe effects and to make adjustments. Should the health care reform be first? Possibly. It is a huge drain on our economy and improving it would have far-flung benefits.

How many parts are there to this?

Improved wealth distribution to the middle-class, improved wealth preservation and investment, improved health care as an asset (like having any insurance), perhaps improved wealth transfer from one generation to the next. Acceptance by Corporate America and the wealthy who can make or break such a new system.

It involves a lot, but might be begun with only a few small steps like the health care reform and establishment of required savings plans.

Posted by: MarkH on June 7, 2007 at 3:04 PM | PERMALINK

"We can always adopt Robert Mugabe's policies, we will have fair income distribution in no time."

We can adopt torture techniques from KGB manuals and we'll have the Soviet Union in the US in no time.

Arguing moron-style is both easy and fun!

Posted by: Maynard Handley on June 7, 2007 at 3:13 PM | PERMALINK

Samuelson is an idiot. I stopped reading him in the 90's when he wrote a piece about how much deregulation had "saved" sociey, but convieniently left out the costs of deregulating the savings and loan industry.

What a tool.

Posted by: Jenna's Bush on June 7, 2007 at 3:19 PM | PERMALINK

We can adopt torture techniques from KGB manuals . . . Posted by: Maynard Handley

I thought we had already? What's Gitmo and "extraordinary rendition" all about then?

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